Interviewer: It appears as if it is taking much longer for new oil and gas projects to be executed.
Jeroen van der Veer: It is quite clear that the active interest that governments show is leading to project delays . Negotiations on the share of profits from the governmental side are taking much longer than before. One would think that higher oil and gas prices will lead to an acceleration of decision making, in reality the opposite is happening. On the longer term this is having an influence on the speed at which new projects can be put into production.
Interviewer: These delays are occurring at the same time as the natural production
decline of oil and gas fields continues and as the demand for energy is rising. The “peak oil” theory does seem to be correct.
Jeroen van der Veer: The peak oil theory, as it was first published by the old American Shell employee King Hubbert, is correct, at least for the easy oil [easily extractable conventional crude]. But Hubbert did not have the Gulf of Mexico on his radar screen. Neither did he think of the oil sands in Canada. For the oil sands a peak oil theory can also be formulated, but for the moment we are still at the beginning of it. And there are many more unconventional sources that can be developed.
Interviewer: But the world is currently running on 85 million barrels of crude oil per day. Mostly from easy oil which is not so easily substituted by unconventional sources.
Jeroen van der Veer: Correct. A considerable amount of knowledge and know-how needs to be developed and large investements need to take place in unconventional oil projects. We have said that in 2015 around 15 per cent of the oil production of Shell should come from unconventional sources. Already the oil industry is very capital intensive and that will only increase – it will become a gigantic investment industry. My proof for all of this? The world in 2015 will use more energy than today and for every barrel more investment will have taken place. And that trend is not going to end in 2015. A growing world population and growing welfare are different types of ‘inconvenient truths’.
Interviewer: Does that mean that ‘100 dollar oil’ is just the beginning?
Jeroen van der Veer: For our investment decision we are in any case taking a much lower oil price to see whether projects are worth investing in. The “difficult oil” can easily be produced on a sound financial basis at much lower oil prices than 100 dollars. The nearly mythical hundred dollars per barrel is based in the perception of a coming shortage of capacity on the oil market. But I think that the demand for oil will react to the present high price, although with some delay. However, this will not lead to a decline in demand, but in lower demand growth. We also know that there is a lot of psychology in the present oil price. The reality is that throughout the chain no one has to wait for any oil: tankers don’t have to wait to be loaded, refineries don’t have to wait for tankers, trucks don’t have to wait at the refinery and consumers don’t have to wait at the filling stations. The physical system is functioning properly. In addition it is an economic law that demand and supply are always in balance. Apparently not everyone is realising this. Sometimes there are frictions, which are showing itself in the price, to which supply and demand are both reactions. This law has not been put out of business.
Interviewer: According to the International Energy Agency in its most recent World Energy Outlook it is possible that a ‘supply side crunch’ will occur somewhere between 2012 and 2015, at which oil supply can no longer meet demand. How likely do you find such a prediction is?
Jeroen van der Veer: I don’t know. On top of that I only look at whether we have sufficient opportunities as a company for our business. I am not an industry guru. At the moment I see that we have adequate resources to develop new projects. Shell currently has 60 billion barrels oil-equivalent of ‘to develop resources’ at which we can unleash our technology. That is where my attention lies.
